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Another Bubble Alert: Home Down Payments Hit Three-Year Low
Fannie Mae and Freddie Mac — the perpetually insolvent, bailed-out GSEs that a whole host of BTFDers and a few disgruntled billionaires swear can become cash cows again if they are just allowed to escape the evil clutches of government — are now allowed to back home loans with down payments as low as 3%. The decision to lower the minimum from 5% to 3% came from the GSEs’ regulator FHFA and its Director, Melvin Watt. Rather than retrace the entire story of how this came about, we’ll give you the Cliff’s Notes version as it appeared in Bloomberg last October:
Fannie Mae, Freddie Mac and their regulator are nearing agreement with mortgage issuers on efforts to boost lending and ease banks’ concerns that they will get stuck with bad loans when borrowers default.
Melvin L. Watt, the director of the Federal Housing Finance Agency, will clarify in a Oct. 20 speech at the Mortgage Bankers Association conference in Las Vegas how some loans can be permanently exempted from the threat of buybacks, said the people, who asked not to be identified because the plans aren’t public. Watt will also discuss an effort that would allow borrowers to put down as little as three percent of the purchase price on loans backed by Fannie Mae and Freddie Mac, enabling borrowers with lower incomes to access the mortgage market, the people said. The two companies currently require a five percent down payment on most loans (ZH: this led FHA — which offers a 3.5% down payment product — to lower premiums in order to avoid losing market share.)
Needless to say, some GOP lawmakers were not pleased with this initiative, noting (correctly) that this simply encourages banks to return to pre-crisis underwriting standards and once again imperils taxpayers by putting Fannie and Freddie on the hook for loans made to borrowers who cannot afford their homes. Of course this kind of argument falls on deaf ears in a society where the answer to debt is still more debt and in a world where even the IMF now recommends “living with” debt rather than repaying it.
Given the above we weren’t surprised to learn that during Q1, the average down payment on single family homes, condos, and townhomes fell to just 14.8% — the lowest level since Q1 2012. RealtyTrac has more:
The Q1 2015 U.S. Home Purchase Down Payment Report shows the average down payment for single family homes, condos and townhomes purchased in the first quarter was 14.8 percent of the purchase price, down from 15.2 percent in the previous quarter and down from 15.5 percent a year ago to the lowest level since Q1 2012..
The report also shows that the average down payment for FHA purchase loans originated in the first quarter was 2.9 percent of the purchase price while the average down payment for conventional loans was 18.4 percent of the purchase price..
FHA loans as a share of loan originations increased throughout the quarter, from 21 percent in January to 22 percent in February to 25 percent in March.
“Down payment trends in the first quarter indicate that first time homebuyers are finally starting to come out of the woodwork, albeit it gradually,” said Daren Blomquist, vice president at RealtyTrac. “New low down payment loan programs recently introduced by Fannie Mae and Freddie Mac, along with the lower insurance premiums for FHA loans that took effect at the end of January are helping, given that first time homebuyers typically aren’t able to pony up large down payments..
The share of low down payment loans — defined in the report as purchase loans with a loan-to-value ratio of 97 percent or higher, which would mean a down payment of 3 percent or lower — was 27 percent of all purchase loans in the first quarter, up from 26 percent in the fourth quarter and also 26 percent a year ago to the highest share since Q2 2013. Low down payment loans accounted for 83 percent of FHA purchase loans originated in the first quarter, while 11 percent of conventional loans were low down payment loans.
“I see the rise in low down payments as a positive for our market. In Seattle, it’s primarily a function of the price growth in our region combined with buyers looking to take advantage of the new Fannie/Freddie 97 loan to value programs,” said OB Jacobi, president of Windermere Real Estate.
And why not?
After all, the average term on new car loans now sits at a record high 64 months, you can now refinance your credit cards with an online P2P loan from someone you've never met, and the government is actively promoting a 'repayment' plan for heavily-indebted college students that allows borrowers to make 'payments' of $0 on their way to complete loan forgiveness in just 300 short months.
In other words, it's no longer about credit risk. The only thing that matters is coming up with ways to re-leverage the economy. Someone else can deal with the fallout when the entire house of cards collapses on itself again down the road.
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110% mortgages....around the corner!
yes, zero down, cash back at close is right around the corner.
Like car loans,
instant upsidedownness.
i saw a mexican dish washer in a brand new tundra this afternoon. he was bangin'!
Thank you gringo, i love a mery ca!
gringo? dat's rayciss!
btw - i hope you and your nine kids have a nice day. ;)
Banks have to pinching themselves wondering if they are having a perpetual wet dream.
"Mortimer, I can't believe they are falling for it again!!!"
All the tax refunds have been spent!
Can I charge it on my unsecured credit card?
LOLOLOL>.........................
2008 was just a warm up. when this house of cards comes down it will be big.
Fucking jackasses
This is the same as buying a car. People ask:
What is my monthly payment with no regards to the actual price.
Just plain stupid fools living month to month.
People with no savings. People not having a clue or don't care about interest rates, actual price of anything bought on credit or a loan. Goes right back to student loans doesn't it. Houses, cars, student loans. It's all the same thing. Debt, more debt, credit card debit, downward spiral.
Easy way to fix it/this. If you can't afford it, don't buy it. It's called saving for a rainy day.
The borrower has nothing to do with these credit market(s) they are merely a face / robot - Countrywide didnt even need a human being to have a loan - cut and paste could accomplish anything
this is about the creditor only - they do what is good for them at the moment and beyond - someone ultimately wants yield and another wants a gross profit on sale of the paper - whether they get their money back isnt important to a lot of participants
it doesnt matter win or lose - no ones business - except the creditors - fraud and stupidity is a business - the solution is losses not more government
it doesn't work that way. if you don't borrow money you are part of the reason for the collapse. be a patriot. save the usa! borrow as much as you can whether you need it or not! usa!usa!usa!
There has never been a better time to buy than today.
So more debt? That's good, we collapse otherwise. /s (?)
There has never been a better time to expatriate.
I have a better idea. Buy with 3% down and then do a reverse mortgage. us old farts are being told a reverse mortgage is the way to go.
Not sure I'd want a nice house with a big yard. One of the guys I work with had to buy 40 bags of mulch and spends his time spreading that shit around and then has to waste more of his lesure time cutting the grass, planting flowers that the rabbits end up eating, and then back to cutting grass. Is this what owning a nice house is all about? Maybe If I could afford to have an Illegal come to my place and mowe the lawn and clean the driveway well but then your also stuck saving what little earnings you have left to pay that ever rising property taxes. Must be why so many rich or past rich actors and celebrities now have their multi million dollar homes on the market.
No down-payments needed these days. Credit Check? .... nah, not at all. Poor score? No worries, Mon.
Bankers can always tap the Fed for moar free, newly printed digital money.
You guys in the States should check out this place....
$500,000 Australian dollars is about $380,000US.
http://www.realestate.com.au/property-duplex+semi+detached-vic-footscray-119825987
This is around the corner from where I live which is regarded in Melbourne as a shit suburb......
Cool! Yet another crash to come. One has got to have things to look forward to.
My local newspaper is 300% ecstatic about local real estate, especially homes. I guess that's up from only 200% in 2008. Buy! Buy! Buy! Anybody else's newspaper NOT bullish? :-)
you gotta have debt to get a head in the USA! or twenty bucks down the corner.
The smell of another AIG bailout is in the morning air.